Montgomery County’s real estate transformation
Montgomery County, Maryland, has saved millions and created new revenue streams with innovative real estate strategies.
Montgomery County reinvented its real estate management to reduce costs while boosting value to taxpayers and benefiting local communities.
Approximate portfolio value of $2 billion and $20.5M annual real estate operating budget.
855,840 square feet of leased space and 400 owned facilities.
Northern suburbs of greater Washington, District of Columbia.
Home to the National Institutes of Health and operations of nearly every leading biopharmaceutical company, Montgomery County, Maryland, has been on the frontlines of coronavirus vaccine research and other life-saving developments. Its thriving life sciences sector is among the diverse industries that had brought steady population growth to the County. Over the past decade, demand for housing and retail services—as well as land prices—had grown dramatically. In response to growing constituent needs, Montgomery County set out to transform its real estate management.
The County’s real estate reinvention began more than a decade ago, in the wake of the global financial recession. Engaged on a County project, JLL offered a complimentary review of the County’s diverse portfolio of more than 400 owned buildings and more than 855,840 square feet of leased space in 88 locations.
The resulting strategic plan revealed numerous opportunities for savings and revenue generation. In the ensuing years, the County adopted an innovative, ongoing program of lease restructurings, facility consolidations, property dispositions and asset monetization through ground leases and public-private partnerships.
“Having a third-party, objective advocate opened our eyes to options we wouldn’t otherwise have considered.”
Reducing leasing costs
One early initiative was an analysis of Montgomery County’s 88 leases totaling approximately 855,840 square feet of space, representing a $20 million annual expense. For each property, the team compared the County’s rental rate to comparable market rates to identify renegotiation opportunities.
The team also identified agency tenants that consistently received annual budget appropriations and were therefore reliable tenants. In addition, the team performed facility condition assessments to document needed improvements to factor into lease terms. Armed with facts and data, the team was positioned for fair and transparent negotiations that led to significant rent savings.
Creative ownership solution for Emergency Communication Center facility.
One important consideration was that mission-critical facilities should be owned rather than leased. Analyzing the County’s leased Emergency Communication Center facility, the team concluded that ownership would best ensure resiliency.
Adopting a creative approach, the County was able to acquire the property. After a facility condition assessment revealed the need for major repairs that reduced the property’s value, the seller agreed to complete several significant improvements in advance of closing. Thus, the County was able to assume ownership without making major capital investments—and it also negotiated an exterior management services agreement with the previous owner.
Redeveloping County land to meet housing demand
Steady population growth has led to ongoing demand for housing, retail and employment hubs across Montgomery County. In response, the portfolio review team helped Montgomery County identify excess and underutilized properties, and determine the feasibility of dispositions for high-density redevelopments.
One promising opportunity was the 45-acre former Public Safety Training Academy (PSTA) site. After the PSTA relocated to Gaithersburg, JLL coordinated a solicitation for Montgomery County and helped evaluate developer proposals to ensure the highest and best use of the property while maximizing proceeds for the County. Now, the former PTSA site is slated for redevelopment to offer up to 2,000 housing units, a transit way and with several public spaces as part of a vibrant live-work-play community.
Creative leasing and procurement approaches
As a government tenant, Montgomery County had to overcome a number of obstacles—including the typically cumbersome procurement process for real estate services. Montgomery County examined contract models successfully used by other Maryland local governments. By adapting the scope, conditions, terms and bidding process used elsewhere in the state, Montgomery County was able to accelerate its own real estate services procurement.
Montgomery County’s leasing team also needed to reset expectations about budget appropriations with landlords. County leases are subject to annual appropriations and effectively have only one-year terms. Multi-year leases typically include early termination penalties and other obligations that discouraged agencies from assuming long-term obligations.
By presenting landlords with the facts about their properties, the leasing team was able to secure more advantageous lease terms, including longer-term leases with no termination penalties, that have saved the County millions in rent. Equally important, the fact-based approach assured property owners that the County was committed to fairness and equity.
Positioned for the County’s next smart moves
Clearly, bold innovation has paid off for Montgomery County. Through new leasing and real estate strategies, Montgomery County has been able to achieve long-term savings while reshaping its property portfolio for greater effectiveness and community benefit.
Critically, the real estate team is leading the County’s task force on post-pandemic space planning. Telework initiatives has saved the County hundreds of thousands of dollars per month in utilities costs alone, while reducing emissions and the County’s carbon footprint. Now, the County is aiming for net-zero building operations; resilient, flexible facilities; and a hub-and-spoke office footprint for continued remote working.
Throughout its reinvention journey, the County has gained a deep understanding of the properties it owns and leases, and anticipates further reducing its lease portfolio. As it adjusts to the post-pandemic era of budget constraints, Montgomery County is equipped to make the smart decisions that align County real estate with constituent needs—while conserving County resources.